eBusiness Weekly
Golden Sibanda
The Zimbabwe Power Company (ZPC) has lost a High Court case in which local private firm, Intratrek Zimbabwe, had sought an order declaring a multi-million dollar contract signed between the parties on the Gwanda solar project valid or alternative payment of $25 million damages for contract breach.
This comes after ZPC initially made several correspondences to Intratrek founder and managing director Wicknell Chivayo, alleging that the contract had been terminated by expiry after the latter failed to meet conditions precedent. ZPC and Intratrek had signed $172 million agreement for the construction of the Gwanda solar project as part of Government efforts to address crippling power shortage. The State power utility claimed the contract failed to meet conditions precedent within the agreed period of 24 months.
However, Intratrek filed a lawsuit at the High Court under case number HC8159 disputing the claims and making a counter claim that ZPC, as contractor, had frustrated implementation of the project, hence breached the contract.
In his judgment delivered yesterday High Court judge justice Tawanda Chitapi, absolved Intratrek of any wrong doing or causing delays in the implementation of the project and declared the contract valid, extant and enforceable.
Justice Chitapi said consequently, ZPC must be stopped from terminating the contract other than in accordance with its agreed terms, including due notice to follow earlier.
In the alternative ZPC is liable to pay full damages in the sum of $25 million to Intratrek on or before 3 February 2019; $15 million for loss of profit, $5 million for costs incurred in syndicating technical partnership with CHiNT Electric and sourcing project financing from China Exim Bank and other financing Institutions and $5 million for reputational damage caused by ZPC.
Following declaration of contract validity, Justice Chitapi ordered ZPC to engage Intratrek in the next 60 days (by February 3, 2019) to discuss each part’s obligations, as initially agreed in the contract for the 100 megawatts Gwanda solar project.
Intratrek had partnered Shanghai Stock Exchange listed CHiNT Electric, which has an asset base of over $33 billion, as it technical partner in the project.
“It is hereby declared that procurement contract number ZPC 304/15 dated 23 October, 2015 between the applicant and respondent is valid and binding between the parties.
“Consequent on the declaration of specific performance in terms thereof, taking into account the addendum to the said contract dated September 21, 2017 is hereby issued.
“The parties shall meet to review progress in regard to discharge of their obligations in terms of thereof, as provided for in clause 5 of the contract within 60 days of this order, failing which the party in default shall be deemed to have repudiated the contract and liable to damages at the instance of the innocent party,” he said.
In his comprehensive judgment Justice Chitapi said ZPC acted unlawfully and in bad faith possibly under external influence from parties who were not part of the contract.
He ruled that while ZPC alleged breach of contract over failure to meet conditions precedent, which were due to lapse on December 23, 2017, waived its right to terminate contract after signing an addendum for completion of works and direct payment of sub-contractors to expedite the process on September 21, 2018.
The High Court judge exonerated Intratrek for causing any delays in the implementation of the project following revelations that the contractor could not unlock funding from China due to Government’s arrears from earlier Chinese loans.
“The applicant averred that the challenge posed by the inability of the Government of Zimbabwe to clear its arrears and unlock the project funding was not of its making and constituted a factor beyond its control,” he said.
Being a project of national importance, and acknowledging that the contractor was not at fault for causing delays to the implementation of project, the ministry of finance granted the project national status and a guarantee equaling $147 million.
The Ministry of Finance also instructed ZPC to raise local funding, in light of fundraising challenges in China due to the outstanding arrears, given that most of what was needed to implement the project could be procured locally except generators, through infrastructure bonds, but ZPC did not comply.
Further, the ministry also conferred prescribed asset status on the project to incentivise pension funds and insurance firms to invest in the infrastructure bonds and even requested the contractor to revise down the project cost in line with falling global costs of installing solar, to make it easy to raise the requisite project funding, but ZPC did not capitalize on such facilitation.
“What is missing in the respondent’s papers is explanation of what it did following the minister (finance) directive, as already indicated,” justice Chitapi said.
He pointed out that in light of the stumbling block to fund raising from China and the Government directive for the parties to revisit the contract and other funding options, it was clear the contractor did not fail to raise project funding for Gwanda solar.
Justice Chitapi said Intratrek tried several means to push the project forward, including proposals for phased project implementation (4x25MW), an effort ZPC did not demonstrate. Further, he said applicant’s technical partner even offered advance payment bank guarantee of $51 million, which ZPC did not take.
The judge also nailed ZPC for frustrating the project by causing the arrest of Chivayo, over trumped up fraud charges arising from a civil matter- unsecured advance payment for the Gwanda project-whose implementation it had delayed.
He also blasted the State power utility for being unreliable and deceitful in denying causing the arrest of Chivayo when it was listed as the complainant in his criminal prosecution on fraud charges currently underway in the magistrate’s court.
“What is mind boggling is that the criminal allegations against the applicant and its managing director that they defrauded the respondent of $5,6 million in payments for work done directly contradict the addendum to the contract produced before the court on oath,” Justice Chitapi reasoned.
“The addendum also clearly shows that a further amount ($1,2 million) was due to sub-contractors employed by the applicant (but was not paid). The fraud is at least, on the facts before this court, difficult to fathom,” he said.
Justice Chitapi said ZPC’s duplicity in causing the arrest of Chivayo was evident and smacked of mala fides.
Further, he said the involvement of police where the contract was clear on dispute resolution mechanisms was “unfortunate and precipitate” and sent wrong signals to investors that if they entered into contracts with
State entities they risked enforcement of obligations through being accused of criminal offences.
“It is noted in passing that section 49 of the Constitution provides that ‘No person may be imprisoned merely on the ground of inability to fulfill a contractual obligation. The sanctity of contracts therefore enjoys constitutional protection’,” he said.
Justice Chitapi also dismissed sustained claims by ZPC that it was defrauded after it paid the contractor without him placing a bank guaranteed. He said ZPC made the payment consciously, knowingly and deliberately. Further, he said the fact that the contractor, who later offered a $51 million advance payment guarantee, failed to meet the agreed timeline did not constitute fraud, but mere breach of an agreed position.
“With the current Government’s thrust that there be accelerated development to ensure the attainment of a middle income status for the country by 2030, it is hoped that key projects like the one involved in this case are not stalled by unnecessary bickering and extra-contractual frustrations,” Justice Chitapi said in the final analysis before passing his judgment.
He said that the engineering procurement contract (EPC) entered into between the parties clearly provides for the dispute resolution mechanism which applies in the event that parties are in disagreement with any issues of fact.
